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Russian Oil Giant Rosneft Sees 18% Profit Spike

Russia's President Vladimir Putin (L) speaks with Igor Sechin, the CEO of state-controlled Russian oil giant Rosneft. In Russia, these are the two kingpins of the energy markets and Rosneft has been showing itself to be an international oil powerhouse. (Image credit: AFP/Getty Images via @daylife)

Russia’s biggest oil firm, RosneftRosneft, reported an 18% increase in net profits on Monday to $4.4 billion. As the company gets a bit richer, it’s looking abroad for more action.

Rosneft, which insists it is the largest publicly traded oil producer following its acquisition of TNK-BPBP, said its revenues in the reporting period grew 34% to 1.988 trillion rubles (or around $61 billion).

“The growth is mainly due to the expansion of the company’s operations on domestic and international markets, partly curbed by weakening on the global oil and petroleum product markets,” Rosneft said in a statement today.

Earnings before interest, taxation, depreciation and amortization (EBITDA) rose 36.4% in the first half of this year to 371 billion rubles. The company’s free cash flow amounted to 68 billion rubles in January-June 2013, versus a negative cash flow of 20 billion rubles in the same period last year.

Rosneft’s results “demonstrate the effectiveness of integration of new acquired assets into the operating and financial activities of Rosneft. Despite the complexities of the process, we have managed to create a company with uniform business processes and a single center for the planning of all production activities within just several months,” said CEO Igor Sechin, known in the local press as the Darth Vader of Rosneft.

Over the last two months, Rosneft has inked $100 million deals in Vietnam and signed cooperation agreements with Venezuelan state owned oil firm PDVSA to drill in the oil rich Orinoco Valley. The company has partnership agreements with ExxonMobil, Eni and StatoilStatoil, mostly to explore and produce oil out of the Arctic Sea.

Rosneft’s biggest problem is technology.

“The problem in Russia is all technical. And perception. They’re going to have a harder time getting the oil out of the ground in East Siberia because no one trusts the Russians,” said Tim Gramatovich, chief investment officer at the $270 million Peritus Asset Management firm in Santa Barbara, Calif.

“Rosneft doesn’t have a lot of high drilling costs but that is going to change as they have to drill deeper into the ground. Getting oil out is never easy and they are drilling in very isolated areas that require a lot of investment in infrastructure,” Gramatovich said. “For investors, these are difficult companies to own because the problem with Rosneft is that it is not run as a corporation. It is run as a government cash machine.”

Rosneft is down 11.42% in rubles this year, underperforming ExxonMobil, which is up 3.33%. Rosneft’s dividend is a bit higher than Exxon’s at 3.37% compared to around 2.7% for Exxon. The stock is listed in London and on the RTS-Micex in Moscow.

Oil production in the first half of the year was a whopping 4.8 million barrels of oil and gas compared to 2.6 million in the same period in 2012. On a quarterly basis, though, oil and gas production was relatively flat. As a standard alone, Rosneft produced 4.1 million barrels of oil in the first half, up 73.5% from the same period in 2012.

Throughput at Rosneft’s Russian and international refineries amounted to 39.45 million tons of crude oil in the first half, up 33.4% yearly. The growth is largely due to the acquisition of new refining capacities in Russia (TNK-BP buy) and abroad. Refinery throughput of Rosneft totaled 47 million tons year to date. Refining volumes in the second quarter rose 49.1% over the first and reached 23.61 million tons, with growth totaling 55.8% at Russian and 15.5% at international facilities for Sechin’s ROsneft.

On the money side of the equation, Rosneft saw a steep drop in net income from the first quarter of this year, bringing in 35 billion rubles ($1.12 billion) compared to 102 billion rubles in the first.

Rosneft is on a tear lately. The company continues to partner with foreign firms in Russia, though slowly. Most of Rosneft’s new growth is coming from partnerships overseas, from the U.A.E. to southeast Asia.

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